Groupon Case Study
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Groupon has over 190,000 merchants worldwide across over 190 categories, with a salesforce of over 4,800 representatives enabling deals in 175 North American markets and 45 countries. In the first 9 months of 2011, Groupon featured deals from over 190,000 merchants worldwide, sold over 93 million Groupons, and had over 142 million subscribers. Groupon uses free cash flow and consolidated segment operating income as key non-GAAP measures to evaluate performance excluding non-cash expenses.
Groupon Case Study
- 1. GROUPON Group Members: David Green Tiffany Gray Frankie Miamen Nicholas Foster Tobi Coker
- 2. • General Economic Conditions • Economic Recession • Social Values & Lifestyles • Couponing • Discrete Consumer Spending • Technology • Mobile media • Social Networking
- 3. Factor Threats or opportunity Impact Political - Legal proceedings/ regulations 1.moderate -Risk of trade due to environmental restrictions. 2. high 3. moderate Economic -/+Economic Recession 1.high Social + Estimated 5 billion cell phone subscriptions 1.high globally. (include demographic) 2.high + Couponing 3.moderate - Low switching cost Technological + Technological advancements in mobile apps. 1.high - Increase competition internet retail/ ecommerce. 2.moderate + Advancement in the use of internet and mobile 3.moderate devices.
- 4. • Market Size and Growth Slow Growth Rate E-Commerce Sales expected to have a growth rate of 9.6% from 2010-2015 Expected sales from E-Commerce $279 Billion in 2015 • Buyer Needs and Requirement • Consumers are more selective • Economies of Scale
- 5. • Industry Driving Forces • Emerging internet capabilities and applications • Changing Societal concerns, values and lifestyles • Industry Trends • Mobile Media Conservative spending Daily Deals
- 6. • Rivalry: Strong Intense Competition Competitors offer better payment options to merchants • Buyer Bargaining Power: Moderate ▫ Consumer preferences are changing • Supplier Bargaining Power: Moderate ▫ Merchants dissatisfied ▫ Merchants looking at competitors • Threat of New Entrants: Moderate to Strong ▫ Amazon Local & Google
- 8. Key Success Groupon Amazon Local Living Social Google Factor/Strength Measure Importance Strength Score Strength Score Strength Score Strength Score Weight Rating Rating Rating Rating Brand Name 0.1 10 1.0 10 1.0 8 .8 10 1.0 Merchant Relationships 0.3 5 5.0 7 2.1 8 1.8 7 2.1 Marketing 0.2 9 1.8 5 1.0 7 1.2 4 0.8 Management 0.1 5 .5 8 .8 7 .7 9 0.9 Location 0.3 8 2.4 5 1.5 9 2.1 5 1.5 Sum of Importance 1 7.20 6.40 6.60 6.30 Weights Weighted Overall Strength 37.00 35.00 34.00 35.00 Rating
- 9. Strengths: Weakness: #1 in the Industry Management Large Subscriber Base Weak Business Model Brand Recognition Cash Flow Large Selection of Deals No Profits Small Business Segment Niche Shady Accounting Practices Aggressive Expansion High Marketing Costs Opportunities: Threats: More Local Markets in U.S. and Globally New Entrants Improve Merchant Relationship Losing Merchant Confidence Mergers And Acquisitions Low Switching Cost Improving Stock Rating Intense Competition GAAP Accounting Practices Easy to Imitate Change in Management Maintaining Repeat Customers
- 10. Year Ended December 31, GROUPON INC 2008 2009 2010 Form 424B4 (Restated)(1) (Restated)(1) (Restated)(1) (dollars in thousands, except per share data) Consolidated Statements of Operations Data: Revenue (gross billings of $94, $34,082, $745,348, $330,079 and $2,754,633, respectively) $ 5 $ 14,540 $ 312,941 Costs and expenses: Cost of revenue 88 4,716 42,896 Marketing 163 5,053 290,569 Selling, general and administrative 1,386 5,848 196,637 Acquisition-related — — 203,183 Total operating expenses 1,637 15,617 733,285 Loss from operations (1,632) (1,077) (420,344 Interest and other income (expense), net 90 (16) 284 Equity-method investment activity, net of tax — — — Loss before provision for income taxes (1,542) (1,093) (420,060 Provision (benefit) for income taxes — 248 (6,674 Net loss (1,542) (1,341) (413,386 Less: Net loss attributable to noncontrolling interests — — 23,746 Net loss attributable to Groupon, Inc. (1,542) (1,341) (389,640 Dividends on preferred stock (277) (5,575) (1,362 Redemption of preferred stock in excess of carrying value — — (52,893 Adjustment of redeemable noncontrolling interests to redemption value — — (12,425 Preferred stock distributions (339) — — Net loss attributable to common stockholders $ (2,158) $ (6,916) $ (456,320
- 11. • Vision ▫ To continue to be the leading internet platform among daily deal companies in the industry. • Financial Objectives Improve stock rating Increase our revenue growth by 2-3% • Strategic Objectives Overtake competitors in performance in the next 2-3 yrs Continue to be recognized as the industry leader
- 12. Generic Strategy Focused Niche ▫ Local Markets ▫ Small Businesses
- 13. • Offensive ▫ Market share growth • Defensive ▫ Retain market position
- 14. Concentrate on capturing unoccupied or less contested market territory Increase Locations ▫ Phase 1: ▫ Look at other competitors and see where they are located ▫ Phase 2: ▫ Begin to look at what consumers want in the local area and also look into promising small business start up’s ▫ Phase 3: ▫ Establish relationships with merchants in the local area and begin to market their business ▫ Phase 4: ▫ Continue to expand into various local cities and monitor success
- 15. Improve service with merchants Improve Merchant Relationships Phase 1: ▫ Survey and ask our merchants what they like and don’t like about our company Phase 2: ▫ Implement various changes suggested by the merchants and customers Phase 3: ▫ Monitor the results and ask merchants if they are pleased with the changes made Phase 4: ▫ Continue to adjust and improve our relationship with merchants as needed
- 16. Improve Quality of Service Change Business Model Phase 1: ▫ Consult merchants about the coupon offers we advertise ▫ Consult merchants about their less popular items ▫ Customer Surveys Phase 2: ▫ Implement price changes to coupon offerings ▫ Promote less popular products or services ▫ Promote products and services customer want Phase 3: ▫ Continue to implement in all local markets Phase 4: ▫ Monitor results and adjust accordingly
- 17. Key Success Groupon Amazon Local Living Social Google offers Factor/Strength Measure Importance Strength Score Strength Score Strength Score Strength Score Weight Rating Rating Rating Rating Brand Name 0.1 10 1.0 10 1.0 8 .8 10 1.0 Merchant Relationships 0.3 6>8 5.0 9 2.1 8 1.8 6 2.1 Marketing 0.2 8 1.8 5 1.0 8 1.2 4 .8 Management 0.1 5 .5 8 .8 7 .7 9 .9 Location 0.3 8>9 2.4 5 1.5 7 2.1 4 1.5 Sum of Importance 1 8.20 6.4 6.60 6.30 Weights Weighted Overall Strength 40.00 35.00 34.00 35.00 Rating
- 19. Groupon: International ”In the nine months ended September 30, 2011, we featured deals from over 190,000 merchants worldwide across over 190 categories of goods and services. Our salesforce of over 4,800 sales representatives enables us to work with local merchants in 175 North American markets and 45 countries.”
- 20. September 30, 2011 Pro forma for December 31, September 30, recapitalization Assets 2010 2011 (Note 2) (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 118,833 $ 243,935 $ 243,935 Accounts receivable, net 42,407 109,852 109,852 Prepaid expenses and other current assets 12,615 111,856 111,856 Total current assets 173,855 465,643 465,643 Property and equipment, net 16,490 41,374 41,374 Goodwill 132,038 169,152 169,152 Intangible assets, net 40,775 50,141 50,141 Investments in equity interests — 45,194 45,194 Deferred income taxes, non-current 14,544 13,361 13,361 Other non-current assets 3,868 10,702 10,702 Total Assets $ 381,570 $ 795,567 $ 795,567 Liabilities and Stockholders' Equity (Deficit) Current liabilities: Accounts payable $ 57,543 $ 40,345 $ 40,345 Accrued merchant payable 162,409 465,586 465,586 Accrued expenses 98,323 156,552 156,552 Due to related parties 13,321 260 260 Deferred income taxes, current 17,210 12,597 12,597 Other current liabilities 21,613 91,353 90,573 Total current liabilities 370,419 766,693 766,693 Deferred income taxes, non-current 604 4,788 4,788 Other non-current liabilities 1,017 39,719 39,719 Total Liabilities 372,040 811,200 811,200
- 21. Nine Months Ended Year Ended December 31, September 30, 2008 2009 2010 2010 2011 Operating Metrics: Gross billings (in thousands)(1) $ 94 $ 34,082 $ 745,348 $ 330,079 $ 2,754,633 Subscribers(2) * 1,807,278 50,583,805 21,369,608 142,865,836 Cumulative customers(3) * 375,099 9,031,807 4,623,267 29,504,314 Featured merchants(4) * 2,695 66,289 31,190 190,795 Groupons sold(5) * 1,248,792 30,296,070 14,060,589 93,629,524 Average revenue per subscriber(6) * $ 8.0 $ 11.9 $ 12.1 $ 11.6 Average cumulative Groupons sold per customer(7) * 3.3 3.5 3.3 4.2 Average revenue per Groupon sold(8) * $ 11.6 $ 10.3 $ 10.0 $ 11.9 Cumulative repeat customers(9) * 162,323 4,483,976 2,186,791 16,045,533 Number Percent Amount Percent Existing stockho 602,803,3 184,769,0 lders 28 94.5% $ 00 20.9% $ 0.31 New public investo 35,000,00 700,000,0 rs 0 5.5% 00 79.1% $ 20.00 637,803,3 884,769,0 Total 28 100.0% $ 00 100.0% $ 1.39
- 22. “We use free cash flow and consolidated segment operating (loss) income, or CSOI, as key non-GAAP financial measures. Free cash flow and CSOI are used in addition to and in conjunction with results presented in accordance with U.S. GAAP and should not be relied upon to the exclusion of U.S. GAAP financial measures. Free cash flow, which is reconciled to "Net cash (used in) provided by operating activities," is cash flow from operations reduced by "Purchases of property and equipment." We consider CSOI to be an important measure for management to evaluate the performance of our business as it excludes certain non-cash expenses. We believe it is important to view CSOI as a complement to our entire consolidated statements of operations. When evaluating our performance, you should consider CSOI as a complement to other financial performance measures, including various cash flow metrics, net loss and our other U.S. GAAP results.” Year Ended December 31, 2008 2009 2010 Net cash (used in) provided by operating activities $ (1,526) $ 7,510 $ 86,885 Purchases of property and equipment (19) (290) (14,681) Free cash flow $ (1,545) $ 7,220 $ 72,204